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I tried to assess the opportunity of Apple Pay but found it to be mostly dependent on how quickly card payments will overtake cash. It seems that as payments move to a digital format they will move to a mobile device. The hurdle isn’t going from a card to a phone but from cash to card.

Data published in The Growth and Diffusion of Credit Cards in Society shows that between 1970 and 2001 households with at least one credit card in the US grew from 17% to 70%. More recent data shows 82% of US consumers have at least one credit card and 77% have a debit card.

The Total Addressable Market for Apple Pay then is dependent on how quickly this pattern repeats over the markets where iOS devices are in widespread use. Once cards are in use they are used with higher frequency and quickly overtake cash for the user.

The only assumption that needs to be made is that the device then replaces the plastic card. This seems a safe assumption as the benefits of the device as payment authenticator are high and the costs are negligible given a penetrated market.

The following graph shows an extrapolation of transaction volumes where Visa and MasterCard and Amex are showing moderating growth with UnionPay showing 20% constant growth through 2019.[1]

Two more assumptions are needed: the share of transaction value captured by Apple Pay and the Apple Pay fee. I used 15 basis points ($15/$10000) as the assumed Apple fee and a share schedule as follows:

Notes:

Supporting these assumptions is a forecast from Nilsen showing total number of cards in circulation by issuer and a forecast of total transactions [↩]

This is why is so hard to explain to outsiders what it is that I actually do sometimes. Sure, everyone on my team designs and develops but at the core we are constantly persuading with varying degrees of success.

How does an organizations structure, resource allocation and measurement dictate its capabilities? Horace and Anders discuss Amazons AWS business in comparison to their traditional online retail business and the Apple and Google strategies.

Apples Services business is growing by leaps and bounds. How much of that can be attributed to iCloud? Horace and Anders consider how big the iCloud business is for Apple, as well as Apples recent stock price rise in this “rolling show” on the way to the airport.

Apple has declared that what used to be “Other Music Related Products and Services”[1] plus “Software, Service and Other Sales”[2] which was formerly known as “iTunes/Software/Services”[3] is about to become “Services”.

“We’ll also have a category that we refer to as services and this will encompass everything we report under the heading of iTunes software and services today including content, apps, licensing and other services and beginning this month it will also include Apple Pay.”

“Services” will therefore encompass a massive amount of revenue. The reported revenues for the fiscal 2014 were $18 billion. Including all billings, the turnover in sales is over $28 billion. For next year, assuming that Apple Pay, which is just getting started, is unlikely to contribute greatly to revenues, Services turnover will top over $35 billion. That figure would make Apple Services alone one of the top 90 companies in the Fortune 500.

Regardless, as a component of overall sales, the group formerly known as iTunes/Software/Services (shown in red above) was a modest 7% of total sales in the last quarter. Using all available information regarding downloads, payouts and reported financials, an estimate can be obtained on how this 7% is itself divisible into nine sub-segments:

Notes:

Includes revenue from sales from the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. [↩]

Includes revenue from sales of Apple-branded and third-party Mac software, and services. [↩]

Includes revenue from sales on the iTunes Store, the App Store, the Mac App Store, and the iBooks Store, and revenue from sales of AppleCare, licensing and other services [↩]

We start with Mini’s plans to sell 100,000 cars in the States by 2020, nearly double today’s pace and remember how Cadillac destroyed their brand and how Mercedes, Porsche, Ferrari et. al. can’t wait to do the same.

Also, might retail power in the form of strong dealer regulation limit brand’s ability to improve or address customer experiences? What motivated Warren Buffet to enter the American car dealer business? (With a long aside on what Buffett investment logic is all about and why it’s not contradictory to a growth investor).

When the Apple Watch was launched, all eyes turned to the Swiss watch industry. Analysts measured it and asked if it’s big enough to be interesting. Industry observers questioned the competitiveness of an entrant vis-à-vis the ancien régime. Marketers weighed in with segmentation hypotheses and how Apple’s queer new device might best fit.

These are all mistakes in analysis.

The market for Apple Watch is not the Swiss (or Chinese) watch market. The market for Apple Watch is the number of wrists in the world. To the extent that those wrists will be covered with Apple hardware will determine whether it is successful or not.

Measuring the existing market is a mistake because the existing products are hired for different jobs. Those measurements will yield only an answer to how big that job is.

Assessing competitiveness vs. incumbents is a mistake because incumbents have perfected solving the problems of wrist-worn timekeeping devices over a century. Apple’s watch is not a wrist-worn timekeeping device any more than the iPhone is a phone or the iPad is a pad.

Segmenting the market by whatever means are convenient today is irrelevant because the segments are currently positioned on the current jobs to be done. It’s no more relevant than classifying the iPhone along the segments defined for phones in 2007.[1]

Some have tried to wedge the Apple Watch among the “fitness tracker” market. This is no more plausible given that fitness tracking is no more interesting than timekeeping is to Watch.

The best way to measure the opportunity is to quantify the “wrist-space-time” continuum and deciding what is and what isn’t addressable. The wrist is an interesting place to put a computer and Apple makes computers. The rest is left as an exercise to the reader.